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No significant fiscal implication to the State is
anticipated.
HB 1535 would add two new sections to Chapter 36 (Rates) and
Chapter 37 (Certificates of Convenience and Necessity) of the Utilities Code.
Both of these sections would apply to electric utilities that operate outside
the Electric Reliability Council of Texas (ERCOT).
In Chapter 36, Section 36.112 would regulate how an electric
utility may recover costs and adjust rates. Specifically, if the electric
utility elects to do so, the Public Utility Commission (PUC) would be
responsible for determining the base rates of that electric utility. However, this
determination would be based off the information provided by the electric
utility.
This legislation would allow the electric utility to propose
and submit additional factors for PUC to consider when determining the base
rate of that electric utility.
Depending on whether PUC issues a final rate determination
that is either higher or lower than the initial rate, it would require the electric
utility to either refund the customers for the excess amount charged or it
would allow the electric utility to surcharge its customers to make up for the
new higher rate. However, an electric utility would not be allowed to refund or
surcharge a customer for a rate going back further than 18 months.
Lastly, in Chapter 37, Section 37.058 would allow an electric
utility to file a request with PUC to be granted a certificate to build an
electric generating facility or purchase an existing electric generating
facility.
5/25/2015 update:
No changes have been made to this legislation in the Senate committee. However, the engrossed House version never remedied our concerns with the back billing issue. We still oppose this legislation but recommend amending it by removing the back billing provisions. The Senate chamber sponsor is Senator Fraser.
First chamber recommendation:
HB 1535 would make it law for an electric utility, operating
outside of ERCOT, to back bill its customers. Under this legislation, if PUC allows
an electric utility to issue a higher rate then that electric utility may back
bill its customers for electricity they have already consumed. This is a clear
violation of our free market principle and property rights principle because customers
would have to pay for a good that they already paid for and used. This would be
akin to a person purchasing a meal at a restaurant and then a few weeks later
being rebilled the difference for that same meal.
Back billing would also have a trickle effect on all businesses
because they would not be able to plan for electricity costs. The only way they
may cushion themselves from electricity price fluctuations would be to raise its
prices on their customers.
Currently under state law, the oil and gas industries are
permitted to back bill its customers once a rate proceeding has been made. They
can only back bill the period the rate proceedings were conducted. There are no
provisions in the law that state whether an electric utility, operating outside
of the purview of ERCOT, may do the same. However, since it is not explicitly
prohibited, an electric utility will usually form an agreement with another
party that allows it to back bill the party.
According to the author’s office the aims of this
legislation are to help speed up PUCs rate proceeding process. The lag between
when a rate is approved and when it was initially requested has put certain
electric utilities in a revenue bind, because they can only recoup the costs of
their investment a couple years later. Additionally these rate proceedings do not
guarantee that an electric utility will receive a sufficient rate approval that
will allow it to recoup all of its expenses. Due to this uncertainty, Moody’s Investors
Service has downgraded these electric utilities to a Baa in the bond market
because they pose a moderate risk arising from the speculative nature in which PUC
determines electricity rates.
Lastly, we had concerns regarding the test year information
submitted by an electric utility to assist PUC in deciding a base rate.
Specifically, we were concerned that PUC would base a rate decision off the
estimates provided by an electric utility, but this is not the case. An electric
utility would be required to file actual information to supplement those estimates
within 45 days of making the initial filing for a rate proceeding. PUC would
then be required to extend the rate proceeding to allow time for it to evaluate
a rate based on the actual information. In other words, PUC would be making its
final rate determination based off an electric utilities actual information,
not its estimated information.
The market that non-ERCOT electric utilities operate under is
heavily regulated, thus the free market is restricted from having any influence
in this area. That being said, we understand that businesses that operate in
this heavily regulated market still need to make money in order to remain
viable. This legislation would help alleviate the red tape that slows down rate
proceedings. In other words, this would allow electric utilities to receive
rate determinations in a timely manner. However, our concerns with back billing
prevent us from going neutral on this bill.
No matter the regulatory landscape for electric utilities, forcing
a veil over a customer to buy and use a product that they have no way of knowing
how much it actually costs until after the fact is not only wrong it is bad
business.
Should the bill be amended to prohibit, or at least substantially curtail, the back billing provisions of HB 1535 (and we understand such an amendment will be offered) we would withdraw our objection and remain neutral on the bill.